Our Finance Minister's concerns regarding Canadians' personal debt loads have been well illustrated through his policy initiates and warnings over the past year. The common sense money advice he is reported to have given his own children, however, may be far more telling in terms of revealing how the Minister views debt. The changes to modern lifestyles reflected in this advice is worthy of consideration from both a social and finance perspective.
In the August 22, 2013 edition of The Lang and O'Leary Exchange on the CBC, Senior Business Correspondent Amanda Lang interviewed Minister Flaherty after his annual policy retreat in Wakefield, Quebec. In questioning Mr. Flaherty about his plans for the next budget, she asked Mr. Flaherty if the housing market remained his "biggest concern."
Answering that it was, Mr. Flaherty acknowledged that he had intervened five times to purposely cool the overheated market. This prompted a question as to whether or not he was concerned about having possibly shut many people out of the housing market and the chance to be home owners by instituting new mortgage and regulatory rules.
Mr. Flaherty's reply to this line of questioning appeared somewhat more personal than is often seen in ministerial interviews. In identifying that he has three sons in their early 20s, Mr. Flaherty stated "I say this to my sons...you shouldn't expect to graduate from college or university and go and buy a house... you should expect, what the last generation did, save some money, gather together a down payment and then buy something." He added "we got kind of off that course for a while in Canada and I don't think it's healthy."
Now, the first thought that some may have is that a great many people, not just those who have recently graduated, may now be 'shut out' from buying a home due to Mr. Flaherty's measures to cool the market.
His response, given the time constraints of a television interview, may have overly summarized the issues involved in the housing market and with Canadians' debt loads. Certainly, any professional working in the personal insolvency industry will tell you that wages which have seen little growth over the last decade, overrun by rapidly rising cost-of-living and post-secondary education costs, are amongst the primary causes of our (near) record high personal debt loads. 'Lifestyle' considerations and a desire to own a home right after graduating from college are not the only issues that warrant consideration.
Nonetheless, Mr. Flaherty's comments do provoke some thoughts on what the future holds for the lifestyles we have come to accept as the norm. With the artificially low interest rates and mortgages enjoyed since 2008, along with a consumerism culture that is fairly well entrenched in our country, have we come to a point where a Minister of Finance needs to give 'common sense' advice on the national broadcaster?
Does anyone, a Minister or not, really need to advise the public that one should save up money before making a large purchase? If the answer is "yes," in part or in full, what does that say on a broader social level? Would it not say that we need a dialogue to determine how we came to have such expectations?
In keeping with the common sense tone to the interview, Mr. Flaherty also noted that "you need to have a plan" to reduce debt. While he spoke of this need on a provincial and national level, one might suggest that his thought equally applies to the individual household. After all, he aptly noted that "we live in a tenuous world" and one could argue that the average person should be aware of this 'tenuous' status. They see their cost-of-living increasing, they know how challenging the job market is and they are repeatedly being told how pending interest rate increases will make their monthly bills soar.
So one might assume, knowing all of this, that Canadians have a plan to deal with their high debt loads and protect their families in the future. But do they? A Bank of Montreal report released July 29th revealed that only one-third of Canadians actually had a detailed debt repayment plan. So, Mr. Flaherty's advice to his young sons may, in fact, be applicable to a much larger group of Canadians.
As a Finance Minister, Mr. Flaherty can force harsh realities upon Canadians through policies that make it harder to borrow more money. These can be helpful as we deal with our growing debt in the face of rising interest rates, a flattening in house prices and slow growth in our economy.
What Mr. Flaherty can't do is make a policy that can alter our lifestyle desires and expectations. We 'own' that and may have to consider doing so in the years to come, given the 'tenuous' times we live in.